Key Takeaways
- Create a budget spreadsheet or use a budgeting app
- List and calculate all your (net) income
- List and calculate estimated expenses
- Fill in your daily expense
- Evaluate your spending habits
- Set goals that you can track
The danger of living without a budget
A well-known Nigerian speaker once shared how his family’s finances took a turn for the better. He started getting speaking engagements that paid more than he ever thought possible.
However, one day, his wife asked him about all the money they were making and asked him to give an account but he became defensive – “I’ve spent most of the money on this family and you know it…”
But there was no budget, therefore, there was no way to show a corresponding expense list that showed that most of the money had been spent on the family for real.
After this, they created a budget (which includes an expense list) and found that a lot of the funds had actually been going to friends who wanted to borrow money and black tax (aka obligations or funds to assist family members).
They were then able to block these money leaks – or at least drastically reduce them.
This is one of the reasons people wake up at 50 sometimes and begin to ask “What did I use all my money for?” “What did I spend all my life doing?”
A budget would have been a perfect way to answer that because data doesn’t lie.
What is a budget?
A budget is an approximation of one’s income and expenses for a set (future) period of time.
Effective budgets are evaluated periodically to eliminate spending assumptions and they help determine if one spends more or less than their income.
Budgets are essential when measuring inflow vs outflow. They can be created by individuals or corporations and are usually short-termed to maximize efficiency.
Budgets are not only for people who “know” or “like” numbers, but can be as simple as you want.
Why are budgets so important?
Budgets are essential in helping you create a financial plan.
It’s hard, if not impossible to create a personal financial plan without a budget but just before I go on with the benefits of budgeting, let me quickly explain what a financial plan is.
What’s a financial plan?
A financial plan is a comprehensive understanding and evaluation of your current financial state in comparison to your long-term goals, as well as the steps needed to achieve these set goals.
It begins with where you are and creates a roadmap for where you want to be monetarily.
It is so crucial that some high-net-worth individuals/families employ a financial firm or planner to help create one for them.
However, a financial plan may be created independently as well, as long as it is devoid of sentiments and is backed by data. Without data, you will create a wishlist instead of an actual financial plan.
Without data you’re just another person with an opinion. – Edwards Deming, Statistician
What data do you need to create a budget?
When creating a budget, you need to consider a number of things. These include but are not limited to your:
- Income
- Black tax
- Debts
- Savings plans
- Assets/Investments
- Insurance
- Groceries
- Light bill
- Entertainment costs
- Eating out
- Transportation
- Travel
These are to have specific figures or estimates to ensure your budget is close to accurate.
Importance of having a budget
Wanting to build wealth for the long-term but ignoring this important basic step of budgeting can be likened to someone working really hard to pour water into a basket. This is because there might be money leaks you’re not aware of that only a budget can help you fix. Remember the story we started with?
As we often say at Cowrywise, what you don’t measure, you can’t multiply.
A budget helps you measure your finances – possibly every penny made and spent. It then helps you know where to make the necessary adjustments for financial success.
Budgets help you:
- Know how to manage your money effectively
- Gain clarity about what’s required for your financial plan
- Track if you’re sticking to your financial goals
- Adequately prepare for projects/plan for the future (If a close friend’s wedding is in 5 months, instead of waiting till then, you can begin budgeting and keeping aside a certain amount towards Aso-Ebi and wedding gifts. That way, you’ll not have to spend too much from your salary in the month of the wedding itself. You get?)
- Monitor your financial performance (Is it excellent, good, average or poor?)
- Imbibe better money habits (and cut out bad ones like impulse buying)
- Organize your spending and reduce/eliminate unnecessary expenses
- Validate or invalidate your assumptions (For example, you might think you spend more on transportation than feeding, but creating and sticking to a budget will help confirm if that’s true)
How much did you spend last month?
If you can’t answer this question, it’s fine…
Actually, I lied. IT IS NOT FINE! It might seem like it is, but it’s a dangerous place to be.
How much did you spend on feeding? How about your transportation?
Exactly how much did you send to your siblings/family? (Not how much you think you sent.)
How much data and airtime did you buy? Did you pay any dues? What percentage of your income covered your groceries?
I can go on and on, but I’ve asked these questions to say that if you want to reach your financial goals, you need to organize your finances. It has to become so clear that you can say for certain how much you’ve spent on what in a certain period of time.
As they say…
Assumption is the lowest form of knowledge – Unknown
Now, let’s go to how to create your budget.
How to create a budget in 6 easy steps
Use the steps below to create a realistic budget that suits your lifestyle and personal goals.
1. Create a budget spreadsheet or use a budgeting app
I’m tempted to type “duh” because this is an obvious step right? There’s no way to have a budget without actually creating “the place” you’ll detail your income and expenses. Choose a tool that’s easy to use and accessible. Some people run from the very idea of spreadsheets but a tool that has rows and columns where data can be arranged is just fine. I’ll advise you don’t use a pen and paper for this because the day it goes missing, you’ll have to start over.
When starting, I’ll advise you don’t create a budget for more than one month, anything more can be overwhelming. Start with a weekly or monthly budget.
2. List and calculate all your (net) income
If you’re a 9 to 5er, your salary is one income stream to take down. However, do not stop there. List EVERYWHERE you’ve made money from in the past few months – side business, monthly vex money from parents (assuming you’re a trust fund kid), etc. However, if you earn only from your salary, then that’s fine, state just that.
3. List and calculate estimated expenses
Remember the paragraph that answered What data do you need to create a budget?
The data listed in that paragraph can also be known as expenses. Your budget should include EVERYTHING you remember that you normally spend money on. Leave nothing out, not even what you spend N5 on (if there’s any such item available in this x3 economy.)
After making the list, put in an estimate of what you think you spend on each item. This is to determine the average monthly costs for each expense.
To have a more accurate estimate, you may need to gather all previous financial statements like your bank statements, utility bills, purchased data/airtime notifications, etc.
If you’re unable to get these, then don’t give up. Most times, your very first budget will not be the best (as with many first things we try out), but as you continue to document and tweak, it’ll become better and your numbers will start to make sense.
See the very first one as an eye-opener that allows you to see exactly what you spend on what. However, budgets aren’t meant for you to just keep saying “Wow, so I spend this much on this and that”. Over time, they’re meant to help you tweak things. Such that you start to say “I used to spend this much on eating out/clothes/ice cream, but now I manage to spend one-third of that and no one’s dead!”
Calculate the difference between your income and expenditure
When I created my first budget, my estimated expenses were higher than my income so I knew I had to adjust.
This is a crucial step in creating a budget – calculating the difference between your income and expenditure. If when you’re done, your expenses are way less than your income, then you’re at a good stop.
If, like me, the expenses calculated are more than your income, then you need to either reduce expenses or make more money.

Separate your expenses into fixed and discretionary categories
Fixed expenses will include things like transportation, debt, feeding, rent, light bill, etc. These are essentials.
Discretionary expenses will include things that are important to you but that are not as important as your fixed expenses. For example, this can include monthly movie dates, travel plans, etc and they can be delayed. However, delaying your feeding, debt repayment (if any), rent or light bills will ultimately end in tears…
4. Fill in your daily expense
This is different from the previous point where you estimate what you used to spend on an item. Here, you have to fill in every penny spent on a daily basis in your budget.
Such that the expense list for the 1st of June, 2022 might look like this:
Expense | Amount (N) |
Transportation to and fro the office | 2500 |
Feeding | 1800 |
Data subscription | 5,000 |
Urgent 2K to younger bro | 2000 |
Total | 11,300 |
I’ve found that what works best is to fill this in daily, or at the latest early the next day. This is because there’s only so much the brain can take. Documenting this daily will ensure you don’t forget any item, which will in turn give you accurate numbers at the end of the week or month – depending on the timeframe you want to follow.
Also, divide these expenses into cash and bank debits for even more accuracy.
5. Evaluate your spending habits
Now that you’re filling in your daily expenses, you need to understand that that’s only a means to an end. The end here is to improve your financial habits.
After say one week or one month, you should evaluate your budget and spending habits. What have you spent the most on? Why? Were there many impulse purchases on your expense list?
Evaluate! Evaluate! Evaluate!
After this, you can then move on to the next and final step in budgeting.
6. Set goals that you can track
Now that you’ve evaluated your spending habits and rated yourself Excellent, Good, Average or Poor (does this remind you of Primary School?) You then need to decide on what to double down on and what to stop.
Set specific goals and keep track of them.
For example, a goal of yours might be to reduce how much you spend on new clothes each month (if you spend a lot) and increase how much you give to causes that matter to you.
In a few months, you can track if you’ve stuck to the goals you set after evaluating your spending habits.
What’s next after reading all of this on how to create a budget…
Make it a habit.
Budget. Evaluate. Set Goals. Repeat.
Will you stay in control?

One of the reasons a budget is so important is that it helps you stay in control of your money and not the other way around.
Yes, there are people who are not in charge of their own funds. I hope that if that were you before reading this, you’ll now be equipped to better manage your finances.
Rooting for you!
Don’t keep this to yourself, remember to share with a friend.
Have any questions about budgeting? Share them with us in the comments below.
Watch how to create a budget on Youtube
RELATED
I really want to control my finances. I envisage that I have a great tendency of making money and mismanaging funds. Most times I run out of money before the month ends and I feel terrible about it.
Hi Sonia.
Thanks for your vulnerability.
We provide a lot of financial education guides on our blog that can help you better control your finances.
Take it step by step and you’ll do better in now time!
What about school fees, health , charity and insurance.
thanks a lot,Ope.really helpful,sometimes we outline the fixed and forget the discretionary ,and wonder how alll the money disappeared .This is very insightful
I look forward to more articles from you guys, random articles on various life topics. I love the active voice you used in writing and that sacarsm part too😊
Thank you! We look forward to having you back here too 💙
This is really amazing and educating! Keep it up and thank you so much for THIS ARTICLE 😍
Our pleasure 🎉
Hello Ope,
This piece is quite insightful and helpful. Thank you. I Read the part where you advised to not document budget on a book as one can lose the book. Can you recommend an app on playstore one can use?
Yes. I’m seconding this comment. I believe an accounting application can help. I actually document my expenses daily but combining them into a general heading is a big task.
Please help us, Ope.
Hi Glow, I can’t recommend any tool off the top of my head right now, but creating a simple Google sheet or excel file for your budgeting can work.
Okay, Ope, you got me on with this one! 😊
I know I make a lot of money as a full-stack digital marketer, but after some time, I’m broke and I’m wondering how come? As you said, I’m wondering “where did all the money go to?”
Sha, this post is very helpful and I’ve just downloaded this app I want to make use of in listing out the entire process… but quick ??
Which app or tool would you recommend for proper budgeting and evaluation?
Regards,
Sam
Hey Sam, happy to hear you found this helpful! 🎉
For the tool to help with budgeting, I highly recommend that you get down to do the “dirty work” first by yourself. Create a sheet on Google Sheets or Excel to input and track your spending to give you a raw idea, and then you can use other tools for lighter budgeting work based on the idea you now have from your sheet.
Hi Glow
You can download money manager on playstore, that’s what I use. There are others there too
I spend close to 38,000 only
Hi Sam,
I found it fascinating when I had to keep track of my sister’s account, but tracking my own expenses or developing a personal budget appears to be an impossible feat.
I mean… I don’t have a stable source of income yet so it seems almost hard to do but then after going through your write up I wrote a few ways in which I get money and am hoping I’d be able to get an hang of it soon.
Thanks for the detailed explanation.
Ope rather not Sam, sorry.
Wow! This is great, learnt a lot
Thank you so much for sharing this, Ope.
I have a question though. How can I budget as a student?
Because it seems like I can’t apply the whole concept of budgeting in my life at the moment.
I mean, I am a student, I don’t have a fixed source of income; I receive allowance from my parent and sometimes from relatives. I also do not work and I have no investments.
Sometimes, I feel like financial plans and budgeting is just not for me, even though I’m quite interested in them.
Like when I even receive my allowance, the rate at which the money finishes fast, makes me ask myself, “How?” “Where did all the money go to?” and “What did I spend the money on?”
I want to know how to track my expenses, save effectively and if possible invest and then build a financial plan, even as a student but I don’t know how to go about it neither do I know what to do.
So, if there’s any advice you could give me, please do. I’m very ready to learn.
Also, thank you so much for your financial lessons. I am always happy when I see your blog updates in my email. Thank you!💜
This is very insightful and educative. I will make a do with this tips immediately. Thanks immensely Ope.
This is helpful I learnt a lot as a young graduate budget helps in build Future occurrences coming in the future also helps to pridict a lot of plan that u ought to achieve
Thanks Ope for this rich enlightenment.
But I got to ask you a question.
What if you don’t get an income per say but, a kind of allowance that’s not stable that you’ll have to ask before its been given to you. How then do you plan a budget given such instance?
Thanks for this wonderful post of yours.It is more encouraging.
Dear Ope,
Thanks for this insightful write up. I am definitely practicing this starting now. This is just what I needed to hear at this time. Thanks again
Really amazing thanks alot for this
I need withdraw
Thank for this wonderful post of yours. It is more encourage
I need withdraw
This article came in on time. Am guilty of many of the bad money management stated in the article. Not withstanding, it is not too late to start. I will be better equipped for the remaining part of the year and next year as well. Thanks Ope
Alisabiu744@gmail.com
This article came in on time. Am guilty of many of the bad money management stated in the article. Not withstanding, it is not too late to start. I will be better equipped for the remaining part of the year and next year as well. Thanks Ope
Ope thanks for this powerful awareness, pls if the is an app I can use for something like this let me know. I should start taking records this month
Mohammed
How can I do this
Thanks very much Ope. I always enjoy your post they are enlightening.Talking about budgeting how can one who’s money doesn’t come in bulk monthly go about making and achieving his or her budget.
I can control my financial status on my own. Because I really feel to be financially independent, on the basis of personal interest, and growth. Thank you so much.
Hi Ope,
Thanks for the blog,
I am currently working and I don’t earn enough. Also, I have to settle bills at home and help the family.
I find it hard to save, any advice on this?
Thanks for this piece, I really needed it to start my next month.✨
Thank you so much Ope. We shall do this
Cowrywise has really helped me to everyone more and spend less
I wish it will not crash
Thanks so much. This is an eye opener. I always wondered why I’m left with nothing at the end of the week/month/year after making so much money. Please, do cowrywise have a budgeting app that could be helpful.? It’s important